By Danny SwajaIn any construction dispute resolution process, not only does a claimant have to prove liability of the other party, but the claimant must also prove damages to prevail on its claim. The proof of damages element to prevailing on a claim is often overlooked and its importance can be underestimated. Many times a claimant will focus its case on the facts supporting entitlement, but fail to take the time to meet all requirements establishing a particular damages claim. While a jury may be more forgiving of such an approach, a court on a bench trial or an experienced construction arbitrator may not be so forgiving. A common example of a construction claim requiring specific elements of proof occurs when a party seeks recovery of extended, or unabsorbed, home office overhead costs for a delay claim. Delays are common in the construction industry and will impact home office overhead costs. Extended home office overhead costs can include management salaries, administrative staff salaries, rent, supplies, home office equipment, and insurance, among others. Construction delay claims are regarded as being among the most difficult types of claims in the industry and often times require the engagement of an expert. This can be due in large part to the difficulty in analyzing the home office overhead costs associated with a specific project in conjunction with the percentage of the total amount of these costs for the company. Typically, home office overhead costs are not directly allocable to a specific construction project. As a result, it is important for a contractor to select a recognized methodology for calculating allocable home office overhead costs and ensure all elements tied to such damages methodology are satisfied. A common methodology for determining the extended home office overhead attributable to a specific project delay is the Eichleay Formula. The Eichleay Formula’s foundation is in the government contracting arena and more specifically in the Armed Services Board of Contract Appeals case, Eichleay Corporation, ASBCA No. 5183, 60-2 BCA 2688. The methodology can be summarized as requiring the following steps to prove an extended home office overheard claim:
- (Total billings for the contract/Total billing for the Company during the original contract period) X Company Total Overhead During Contract Period = Home Office Overhead Allocable to the Contract.
- (Overhead Allocable to the Contract)/(Days of Contract Performance) = Daily Home Office Overhead Rate
- (Daily Contract Overhead Rate) X (Days of Compensable Delay) = Recoverable Home Office Overhead
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